Checking Up on Your Broker

How to be your own private eye to ferret out problems with the law

En español | From Ponzi schemes to "free lunch" seminar rip-offs, investment swindles have already damaged the nest eggs and emotions of one in every five Americans over 65 — about 7 1/2 million retirement-age folks, according to the nonprofit Investor Protection Trust. Some people have lost their entire savings to crooked financial advisers.

And the problem could be on the upswing. Each day, some 10,000 boomers turn 65, with an eye toward retirement and the rollover of their employer-managed 401(k)s into IRAs. They join countless others who have seen their savings damaged by the recent economic downturn and are looking for money managers and investment options to help them rebuild.

If you're a newcomer to the financial adviser market, you may attempt to do your homework but still get burned. That's because most people don't look deep enough — they just want someone to give a simple yes or no as to whether a particular adviser or investment is legit, says Pat Huddleston of Investor's Watchdog. "If you want to avoid financial fraud, you have to conduct due diligence like a fraud investigator."

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For a fee, firms like Huddleston's do the legwork on people and companies that are being considered. Or you can do it yourself. If you take this route, Huddleston, a former Enforcement Branch chief at the Securities and Exchange Commission, advises looking beyond the standard go-to sources.

Where to go for information

Here are a few places Huddleston suggests for your investigation:

BrokerCheck. This is a first stop for many. A free service run by FINRA (Financial Industry Regulatory Authority), an independent regulator for all securities firms doing business in the United States, BrokerCheck lets you find out license status, firm affiliation and other broker information.

But what most people don't know, says Huddleston, "is that, until recently, brokers and their firms were allowed to negotiate to have past actions against them expunged from FINRA records — and not necessarily because they were deemed invalid." So, says Huddleston, dig deeper.